Billy Company developed the following budgeted life-cycle income statement for two proposed products. Each product's life cycle is expected to be two years.

Product A Product B Total

Sales $ 200,000 $ 200,000 $ 400,000

Cost of goods sold $120,000 $130,000 $250,000

Gross profit $ 80,000 $ 70,000 $ 150,000

Period expenses:

Research and development ($70,000)

Marketing ($50,000)

Life-cycle income $ 30,000

A 10 percent return on sales is required for new products. Because the proposed products did not have a 10, percent return on sales, the products were going to be dropped.

Relative to Product B, Product A requires more research and development costs but fewer resources to market the product. Sixty percent of the research and development costs are traceable to Product A, and 30 percent of the marketing costs are traceable to Product A.

1. If research and development costs and marketing costs are traced to each product, life-cycle

income for Product A would be

a. 38,000.

b. 27,000.

c. 23,000.

d. 15,000.

2. If research and development costs and marketing costs are traced to each product, life-cycle

Income for Product B would be

a. 35,000.

b. 20,000.

c. 12,000.

d. 7,000.

3. Return on sales for Product A would be

a) 40%

b) 25%

c) 11.5%

d) 2.5%.

4. When is the best time during the product life cycle to implement cost reduction measures?

A. during the production stage of the product life cycle

B. during the planning stage of the product life cycle

C. during the logistics stage of the product life cycle

D. at any time during the product life cycle

5)Life-cycle cost management does NOT consist of

1. Actions taken to enable a product to be designed, developed, produced, marketed, distributed, operated, maintained, serviced, and disposed of in order to maximize profits.

2. Actions to extend the life of a product through design, development, production, and maintenance.

3. Actions that focus on minimizing the cost of developing, designing, producing, distributing, operating, servicing, and disposal of a product.

4. Actions taken to design, develop, test, market, distribute, maintain, service, and dispose of a product to maximize revenues.

A: 1, 2, 3

B: 2, 3, 4

C: 3, 4,1

D: 4, 1,2,

6) Management at Kirkland Machine Tool Co. is considering the development of a new automated
drill press called the Auto Drill. After conferring with the design engineers., the controller's staff
assembled the following data about this project.
Target selling price		$ 7,500.00
Desired profit percentage	25% of total unit cost
Projected unit demand		4500 units
Activity-based cost rates
Materials handling activity	5% of raw materials and purchased parts cost
Engineering activity		$300 per unit for Auto Drill
Production and assembly activity	$50 per machine hour
Delivery activity		$570 per unit for Auto Drill
Marketing activity		$400 per unit for Auto Drill
Per unit data
Raw Materials cost		$ 1,620.00
Purchased parts cost		$ 840.00
Manufacturing labor hours	6 hours
Hourly rate		$ 14.00
Assembly labor hours		10 hours
Hourly labor rate		$ 15.00
Machine hours		30 hours
A) Compute the product's Target cost.	(2 marks)
B) Compute the product's projected unit cost based on the design engineers estimates. (2 marks)
C) should management produce and market the Auto Drill? Defend your answer. (1 mark)